Govt approves UDF for domestic passengers

The civil aviation ministry has directed the Hyderabad airport to levy a user development fee (UDF) of Rs 375 on each domestic passenger, more than 38 per cent lower than what GMR Hyderabad International Airport Ltd (GHIAL), the developer of the airport, had asked for.

The airport had asked for a UDF of at least Rs 600 from domestic passengers travelling out of Andhra Pradesh. For passengers travelling within the state, it had demanded a user fee of Rs 350.

UDF is the fee levied at the airport on departing passengers to enable the airport developer bridge the gap between expenditure and admissible revenue as stipulated by the ministry guidelines.

The Hyderabad airport already charges Rs 1,000 as user fees from international passengers.

“What has been allowed to us is much lower than what we had asked for. This will definitely mean losses for the airport. We have to take a call on how to fill the widening gap between our revenues and costs,” said A Vishwanath, chief commercial officer, GHIAL.

In its accounts submitted to the civil aviation ministry last month, GHIAL had estimated that due to the recent slowdown in traffic, the gap between revenues and costs would widen by another 15 per cent which would make a case for UDF which was more than Rs 600.

“However, we had said that even with the rising costs, we were fine with a levy of Rs 600 but could not go lower than that,” he said.

The ministry today also came up with guidelines on the basis of which UDF is to be charged at airports which will be finalised after discussions with various stakeholders. According to the guidelines, the project cost is to be estimated on the basis of aviation-related costs and have to be in line with the targetted capacity creation. The guidelines mandate the consideration of whether the contract was awarded after competitive bidding.

Apart from the aeronautical costs, cost of capital employed, depreciation, operation and maintenance, and taxes would also be admissible as a pass through into the tariff.

For estimating the cost of the capital employed, cost of debt on actual basis and 14 per cent return on equity is to be considered. Since expenditure items like personnel costs, operations and maintenance and pre-operative expenditure have not been verified, a cap was proposed for these items.

The guidelines have stipulated that to estimate revenue of the company, the sum of the total aeronautical revenue and a portion of non-aeronautical revenue has been considered.

About Devesh Agarwal

A electronics and automotive product management, marketing and branding expert, he was awarded a silver medal at the Lockheed Martin innovation competition 2010.
He is ranked 6th on Mashable's list of aviation pros on Twitter and in addition to Bangalore Aviation, he has contributed to leading publications like Aviation Week, Conde Nast Traveller India, The Economic Times, and The Mint (a Wall Street Journal content partner).
He remains a frequent flier and shares the good, the bad, and the ugly about the Indian aviation industry without fear or favour.